Financial Crime World

Here is the converted article in Markdown format:

LIECHTENSTEIN COMPLIANCE WITH FINANCIAL REGULATIONS: A LOOK INTO THE NATION’S BANKING SECTOR

The Financial Market Authority (FMA) oversees Liechtenstein’s financial regulatory landscape, ensuring compliance with banking regulations, supervision, and resolution. The FMA plays a crucial role in maintaining the stability of the country’s banking sector.

Obtaining a Banking License

To operate as a bank in Liechtenstein, institutions must obtain a banking license from the FMA. This requires demonstrating:

  • Financial soundness
  • Adequate risk management practices
  • Adherence to prudential regulations

Banking licenses can be issued for various activities, including:

  • Accepting deposits
  • Granting loans
  • Providing investment services

Types of Banking Licenses

The regulatory regime distinguishes between different types of banking licenses, each catering to specific services or activities. For example:

  • A license may permit a bank to engage in:
    • Broker-dealer activities
    • Payment services
    • E-money issuance
  • However, not all licenses automatically grant permission for other related activities; these must be separately licensed.

Regulatory Sandbox

Liechtenstein has implemented a regulatory sandbox, allowing innovative financial institutions to test new products and services under close supervision. This facilitates the development of fintech solutions while ensuring compliance with existing regulations.

Cryptocurrencies

Regarding cryptocurrencies, there are specific restrictions in place, including:

  • A moratorium on issuing or custodying digital currencies without prior FMA approval
  • Crypto assets do not qualify as deposits and are not covered by deposit insurance or segregation of funds

Bank License Application Process

The application process for bank licenses typically involves submitting detailed documentation and undergoing an evaluation of the institution’s:

  • Financial soundness
  • Risk management practices
  • Compliance with regulations

The average timing for the licensing process is approximately six months.

Cross-Border Activity

Cross-border activity is permissible in Liechtenstein, but institutions must comply with specific requirements, including:

  • Obtaining the necessary licenses
  • Adhering to prudential regulations

Basel III Framework and Liquidity Requirements

The FMA has implemented the Basel III framework regarding regulatory capital, with some deviations for certain categories of banks. Additionally, there are liquidity requirements in place, including:

  • Liquidity Coverage Ratio (LCR)
  • Net Stable Funding Ratio (NSFR)

Financial Statements and Reporting

Banks in Liechtenstein must publish their financial statements on a regular basis, including interim reporting every six months.

Consolidated Supervision and Shareholdings

Consolidated supervision is also implemented, allowing the FMA to monitor the financial situation of banks and their subsidiaries. Reporting and approval requirements apply to the acquisition of shareholdings in or control of banks.

Eligible Owners and Resolution Regime

Eligible owners of banks are subject to specific restrictions, including limits on major participations. Foreign shareholdings in banks are also restricted.

The resolution regime for banks in Liechtenstein is designed to ensure the stability of the financial system while minimizing costs and risks to taxpayers. In case of a violation of banking regulations, the FMA can impose various sanctions, including:

  • Fines
  • Suspension or revocation of licenses
  • Criminal prosecution

Deposit Insurance and Bail-Ins

Client assets and cash deposits are protected through deposit insurance and segregation of funds. The country’s resolution regime includes a bail-in tool, which applies in situations where a bank is deemed insolvent.

TLAC Requirements

Liechtenstein has implemented the TLAC (Total Loss-Absorbing Capacity) requirement for banks, with varying capital requirements depending on the type of institution.

Strengthening Prudential Regulations and Improving Financial Stability

In recent years, the FMA has focused on strengthening prudential regulations and improving financial stability. The biggest threat to the success of the financial sector in Liechtenstein is seen as the potential impact of global economic trends and market volatility on the country’s small but stable banking sector.